Inflation jumped to a higher-than-expected 3.6% in the 12 months to June, latest Office for National Statistics data shows, up from 3.4% in May.
It is the sharpest increase in the inflation rate since January 2024, with higher motor fuel and food costs behind the rise.
Many had predicted that inflation would hold steady, so the surprise hike has raised some uncertainty over the Bank of England’s next move on interest rates, and whether the increase is significant enough to delay further cuts.
Until now, the Bank has been clear that rates are on downward path. However, the exact timing of cuts has remained uncertain, with recent economic data making it difficult to know which way the Bank will move next. That said, its overarching objective remains bringing inflation down to its 2% target, and despite this month’s inflation setback, it may still choose to cut rates when the Monetary Policy Committee meets in August.
What’s happening to mortgage rates?
Although the latest inflation numbers might present the Bank of England with something of a dilemma, mortgage markets have been responding to the broader outlook for falling interest rates. Fixed-rate mortgage pricing has edged lower in recent weeks, as lenders compete to attract borrowers. The rate of cuts could slow following the jump in inflation, but it may not necessarily reverse entirely unless further surprises emerge.
At the same time, recent regulatory changes are giving lenders greater leeway to offer higher income-multiple mortgages. This is already being reflected by changes in the borrowing criteria used by some lenders, making it potentially easier for buyers to access larger loans. Coupled with the likelihood of further rate cuts down the line, this means that borrowers still have reasons to remain positive.
However, the inflation figures provide a valuable reminder of how unpredictable economic forecasting can be, and why if you spot a competitive mortgage deal you like, it might not pay to hang around in the hope that better rates might come along in future.
If you’re worried about locking into a fixed mortgage rate at the wrong time, L&C’s free Rate Check service can provide valuable piece of mind. It allows you to secure a deal now, protecting you against any future potential increases, but also to review rates at any time until you make the final switch to a new deal.
